Most policymakers, investors and environmen-talists are by now aware that the future of the Australian economy and indeed the planet depends in no small part on China. But by focusing on China's headline economic growth rate they are in danger of missing the story.

China's gross domestic product growth is invariably impressive but its significance is swamped by changes in the composition of that growth. And if there is a single internal meta-trend to watch, it is the changing division of economic returns between capital and labour.

In 2002 Chinese corporate profits accounted for 20 per cent of GDP. Within five years that figure had risen above 30 per cent.

The economic returns from China's recent growth model have been naturally captured by heavy industry. Some of those profits have come from export earnings and been recycled into foreign exchange reserves. But mostly they have been ploughed back into investments in more steel, aluminium and cement factories in a self-reinforcing cycle.

In China the high profits, savings and investment of heavy industry have been amplified by government policy. UBS China economist Wang Tao lists the important ones:

- Artificially lowering the prices of land, resources and energy;

- Allowing state-owned firms to keep and reinvest profits;

- Stalling on liberalising services and the financial sector in particular, which limits investment choices;

- Favouring large, state-owned companies over other enterprises; and

- Rewarding officials on raw GDP and production numbers.

It is no coincidence that the turbo-charging of Chinese profits, particularly in heavy industry, has exactly coincided with the biggest and longest global resources boom in at least 100 years. It also explains how China has vaulted prematurely into top spot on the world's carbon emissions charts.

Exponential growth in heavy industry production explains how Chinese electricity consumption flipped from trailing GDP growth in the 1980s and '90s to exceeding it.

Electricity consumption growth has averaged 13.5 per cent this decade, outstripping GDP growth of 10.4 per cent, while heavy industry has risen to consume 55 per cent of China's (coal-dependent) electricity production.

​

The good news for the long-term health of the planet - if not for investors in BHP Billiton and Rio Tinto - is that China's pattern of growth in heavy industry is "not remotely sustainable", to quote Jonathan Anderson at UBS.

In fact it seems to be already reversing. (Mining investors should not yet fret - another seismic shift in the structure of the Chinese economy is that the slump in Chinese resources consumption has been overtaken by a larger slump in high-cost domestic production, opening the door for an unprecedented surge in Australian exports).

The surge in Chinese corporate profits this decade has not only manifested in soaring resources prices and the accelerated suffocation of the planet. Another way to look at rising profits is that a declining share of national income is flowing to workers.

The share of employee compensation fell from 53 per cent of China's GDP in 1997 to 45 per cent in 2002 and a miserly 40 per cent in 2007.

That's one of the sharpest shifts in any major economy anywhere in the world.

Economist Wang Tao again shows what's been going on. She says the emasculation of employee income was not due to wage restraint. Rather, it was due to China's lousy record of jobs creation. Growth in the number of non-farm jobs averaged just 3.4 per cent between 2000 and 2007, less than half of the 6.9 per cent rate recorded in the 1980s.

Not surprisingly, the relative decline in employee compensation has led to a commensurate relative decline in household consumption (from 45 per cent of GDP at the start of this decade to 35 per cent in 2007, compared to 70 per cent in the United States).

China's disposable household income data shows a similar pattern, although the series appears to have been ruptured by a large GDP revision in 2005.

The relatively low growth in employee compensation explains how the Chinese Communist Party has managed to create the most un-egalitarian nation in Asia, equalled only by Nepal, according to the Asian Development Bank. Perhaps it also explains a large portion of the 100,000 "mass incidents" that the Chinese Government reportedly counted across the country last year.

These days China's domestic problems and imbalances do not confine themselves within China's borders. China's falling consumption rate can explain its relatively low imports and its world record trade surpluses. These, in turn, have fed the world's economic imbalances and created the preconditions for the global financial crisis.

These are all reasons why keeping pace with China's impact on the world requires you to track the structural changes - and therefore the policy debates and political struggles - going on within China.

In an article in today’s International Herald Tribune Thomas L. Friedman discusses the prospect for China now that western markets have woken up and are “on the credit wagon”.

From the article - Stephen Roach, the chairman of Morgan Stanley Asia, Americans

“the most overextended consumer in world history” – can no longer buy so many Chinese exports. We need to save more, invest more, consume less and throw out most of our credit cards. But as that happens, we need China to take our discarded credit cards and distribute them to its own people so they can buy more of what China produces and more imports from the rest of the world.

The ruling communist party in China has been able to remain in power whilst overseeing an aggressive economic growth simply by promising ever-improving living standards – and delivering – without implementing any real change.

The spending binge US consumers went onto was also fueled by the Chinese willingness to hold on US dollars and treasury bills – thus allowing US interest rates to remain low therefore credit cheap for consumers.

The good times are over.

With this post I want to make a political point rather than an economic one.

As the article says Chinese have to pick up our over-stretched credit cards and start spending themselves. Otherwise it all falls down.
Will it happen? No. Borrowing is just not part of Chinese culture – and it’s not going to change any time soon.

As it’s been proved time and again, a recession, or a general decline of living standards, brings out the worst in us, which in turn means (often) civil unrest. People have to find something or somebody to vent their anger at. The government is the easiest option.
Immigrants are an even easier one (I suppose there’s no helping ignorance and stupidity), but there’s not much of that in China.

Businesses have already been going belly-up (quietly) in China for a while. The moment the tipping point is reached the Communist party will find itself in a rough spot.
This, as far as I’m concerned, as been long coming in China, this recession will simply help things along.

No soft touch: Barack Obama's administration has abandoned its gentle approach on trade issues with China. Picture: Bloomberg
It was the first trade complaint against China filed by Barack Obama’s administration, which has been seen as soft-pedalling on trade issues with the Asian giant.

The complaints filed with the WTO represent a departure from past allegations by the US and other countries that China is flooding other countries' markets with its exports.

US Trade Representative Ron Kirk called China's alleged export restraints on raw materials a "giant thumb on the scale" in favour of China's chemicals, steel and aluminium industries, among others, which use those materials.

“Hopefully, all of our partners will realise that we're serious about this,” Mr Kirk asserted as he made a joint announcement with EU Trade Commissioner Catherine Ashton about the WTO action on China.

“All of us have parroted the words that we don't want to engage in anti-protectionism, but we have to give real meaning to that,” Mr Kirk told reporters in Washington.

The raw materials involved in the dispute include bauxite, coke, magnesium, manganese, silicon metal and zinc. China is a top producer of these materials.

The US alleges that by limiting exports on those products through quotas, export duties, licensing and other restraints, China gives an unfair advantage to its manufacturers that use those materials.

In raising the case, the US said that, by unfairly restricting exports of raw materials, China was hurting American steel, aluminium and chemical manufacturers, among other industries that desperately needed the materials.

China has 10 days to respond to the requests for consultation at the WTO. Last week, China's government defended the restrictions, saying they protect the environment and improve the composition of China's exports.

China said the restrictions were aimed at protecting the environment.

“Taxing exports of some high energy-consuming and pollutant goods is to improve the world's trade environment and China's export structure, and to further enhance environmental protection measures,” China's Commerce Ministry spokesman Yao Jian said last week. “There is no perfect trade policy.”

Responding to an email request for comment, the Chinese Embassy in Washington said a reply to the complaint should be coming soon.

US trade officials told reporters that the two complaints filed separately by the EU and the US highlight the importance of this dispute.

The EU’s Ms Ashton said "the Chinese restrictions on raw materials distort competition and increase global prices, making things even more difficult for our companies in this economic downturn".

Mr Kirk said he hoped the dispute may be resolved through consultation within the WTO process.

The American Iron and Steel Institute, the United Steel Workers and other industry groups released a joint statement praising the Obama administration's decision to pursue a WTO case against China.

The USW and four other steel industry organisations, whose workers and member companies represent all of America's steelmaking capacity, said removal of current “barriers” would improve the ability of US manufacturers to compete with Chinese producers on a “more level playing field”.

"When China joined the WTO in 2001, it committed to removing these restrictions," the groups said.

Mr Kirk said it seemed somewhat "counterintuitive" that the Obama administration's first WTO complaint involved allegations that China was not exporting enough.

Traditionally, the complaint from Washington has been that China's trade and foreign-exchange policies have favoured that country's exporters too much. The US argues that China has unfairly benefited in sectors such as metals and chemicals because of the restraints on raw-materials exports.

“We are most troubled that this appears to be a conscious policy to create unfair preferences for Chinese industries by making raw materials cheaper for China's companies to get, and goods more economical for them to produce,” Mr Kirk said.

Mr Obama was elected last November after campaigning for a robust trade policy against China, especially charges that it was manipulating its currency for trade gains.

“Today's action sends a signal that America is beginning to get serious about enforcing the rules,” said United Steelworkers president Leo Gerard.

“But it's only the first step in what must be a comprehensive approach to get China to start playing by the rules,” he said.

After a surprise attack on China over its currency policy in the early days of his presidency, Mr Obama’s administration was seen by some groups to have become soft with Beijing on trade issues.

One reason cited was China's financial muscle.

Being the top holder of US Treasury bonds valued at nearly $US800 billion ($568bn), China is the largest creditor to the US.

Fred Bergsten, head of the Peterson Institute for International Economics, said Mr Obama needed to be bold on trade, citing as an example China's recent directive to local governments to favour domestic companies when purchasing goods under a massive stimulus package.

“China's new protectionist policy on government procurement, while legal under the porous rules of the World Trade Organisation, sharply raises the threat to the global trading system that he (Obama) must counter,” Mr Bergsten said.

The US has also been accused of giving preference to local products under its economic stimulus program.

Since China joined the WTO about 10 years ago, the US has filed six cases against that country, all under the watch of Mr Obama's predecessor, George W Bush.

China has so far filed four cases against the US. It launched the first WTO case against the Obama administration in April, challenging a US ban on Chinese poultry.

The Asian giant is the third-largest export market for the US and its largest supplier of imports.

The latest case against China came after talks the past two years failed to prod Beijing to remove the export restrictions on the raw materials.

Under WTO procedures, the parties have up to 60 days to engage in consultations on how to resolve the dispute. At that point, the US would be able to request formation of a dispute settlement panel to hear the dispute.

Here’s some recent news about the real estate markets in China. I think it is fascinating watching how these things unfold. This proves once again that the lesson of history is that we don’t learn the lessons of history.

I predicted over 2 years ago that the Chinese stock markets would implode dramatically, much to everybody’s disbelief and skepticism. It began a few months sooner than I thought, but, that is exactly what has happened. Now for the last year or so, I have predicted that things will get VERY bad in the Chinese real estate markets over the next several years. Again, most people I have talked to about this (especially Chinese) have almost universally dismissed this notion as absurd.

But this is not just a guess. When you read these articles, you will see just some of the evidence that leads me to this conclusion. There are a lot of data on this, and most of it comes from statistics issued by various Chinese government agencies. But it is not advertised by the mainland press or TV. So, many Chinese are not at all aware, and think that everything will soon be wonderful, because that is pretty much what they constantly hear from the official media.

That is one thing I noticed immediately about China: there is a constant barrage everywhere you turn—-TV, advertisements, magazines, newspapers, billboards, etc.—-that essentially suggests that everything is wonderful and getting more wonderful all the time, and everybody is just happy, happy, happy, and China is getting better and better and stronger and stronger. I was really struck by this. It was like living in a never-ending infomercial. Maybe some go to China and are not very aware of this, but to me it was like a constant din.

Actually, at least some of this data is readily available on the mainland. But it requires digging. The official news agencies like Xinhua and the People’s Daily just keep repeating the same mindless mantra in endlessly varying ways every day: “Everything is good, there are only a few small little problems, but the Motherland is unstoppable and will just get mightier and mightier and mightier.” If the Falun Gong would just chant that mantra, they would get to keep their organs and they would have no more problems in China.

The news here is actually worse than I realized. One very alarming thing is that the Chinese banks have avoided writing down bad debt. I should have assumed this would happen, since it is hard to see how it could be avoided, given the nature of the Chinese culture. This is NOT a good idea. It is like pretending that defaults and bad debt simply don’t exist, and this is very bad for the financial sector in the long run.

This is exactly what the Japanese banks have done, and it is partly because of this that their stock markets have imploded over the last 20 years, and their economy has been stagnant for many years—-the Nikkei collapsed in late 1989 after peaking at about 39,000. Now, a full 20 years later, it is only trading at around 8800, and would have to rise another 450% just to equal the old highs, and that would not even consider the effects of the reduced buying power of the yen today vs. 1989. When you take that and inflation into consideration, the Nikkei would probably have to rise more like 700% or 800% or more from current levels to equal the equivalent of 1989 values. This is actually not very atypical for an imploded bubble. And that is exactly what the Shanghai and Shenzhen markets are looking at, since you have the exact same lethal combination in 1989 Japan as you do now in China: dual bubbles in real estate and stocks (one has imploded), and a decided reluctance to face facts and write down bad debt and defaults. In contrast, in the US in March 2000, we had a bubble in the stock market but not the real estate sector. And even though 7 trillion dollars in stock equity disappeared after March 2000, there was an increase in value of the real estate markets of 8 trillion dollars that more than offset those losses. That is a major factor that allowed the economy to expand in subsequent years, but that is not possible in China, just as it was not possible in 1989 Japan.

This is a singularly ominous combination that makes China’s economic future outlook over the next 25 years very grim. And that, in turn, will lead to acceleration of civil unrest. In fact, that has already happened: incidents of violent civil unrest have accelerated markedly all across China over the past year or two. But I think this could well get far more noticeable and disruptive. Some economists have said that in order to avoid disruptive amounts of civil unrest (as opposed to the more manageable baseline levels of unrest that are a constant), China’s economy must grow by 8.5% per year or more, just to keep enough people quiet. I suspect that is probably more or less approximately true in principle, although I don’t know where they came up with that number. But regardless of what that magic number might be, when that economy gets really bad—–watch out. That’s the seeds of civil war, if you ask me. If you have a very large group of desperate people coupled with an extreme polarization of wealth, you have a classic “haves” vs. “have nots” Marxian confrontation that is the underpinning of most if not all major revolutions. Then, the only missing ingredient is a charismatic leader (like Mao, for example…..).

Eventually, debt must be written down, otherwise confidence in the banking sector will be insufficient to promote liquidity, and if you cannot promote liquidity and credit markets, you can not stimulate economic recovery. And that is the story of Japan over the last 20 years. That is what has been happening here in the US over the last year or two, but this is getting better here because banks and other financial institutions have been booking their losses (mostly because the government forced them to do this when they gave them the stimulus money). So why do banks resist writing down bad debt? Because in the short term, it makes them look like failures, and people in positions of power are afraid they will lose their jobs. So, to keep their jobs and to “save face,” (NEVER underestimate the critical importance of “face” in Asian cultures!), they just keep pretending everything is wonderful. The problem is they keep their jobs and look like they are very clever, but that just makes things worse and worse, and eventually causes the economy to just stagnate and go nowhere. Just ask the Japanese…….

Anyway,….. no matter what people may tell you, this is the worst possible time to buy real estate in China in particular, or to invest in China in general. Read these and you will see why.

They talk about a book that was “just published” by some hedge fund whiz by the name of Rogers who lives in China now. The book is about as bullish as you can get on China. He says that “even if China’s stock market were to plummet, that country’s economy would remain healthy, and would continue to advance unchecked.” He calls China “the world’s greatest market.”

I don’t know if this is a pump-and-dump scheme, but it sure sounds like one to me. Somebody ought to inform Mr. Rogers that even as his book was being published, the Shanghai and Shenzhen bubbles had already burst, had plummeted 15% in a few months, and were destined to drop far more over the remainder of 2008. And despite the fact that these bubbles lost over 70% in a year, they have NOT seen the bottom yet. And, they won’t see those lofty 6000+ levels again in real dollar (or real RMB) terms for another 30 years at least.

If you ask me, there’s no better short in the world than China. The problem is that the vehicles for shorting anything in China are very limited and not ideal. Well-heeled investors in China can short those markets, but this is a relatively recent development (maybe 2 years ago they changed the regulations). The average retail investor in China still can not short anything in those markets, because there are very stiff capital maintenance requirements with brokers there. And, the average retail investor elsewhere has only a couple of choices.
So how to make money in China?

I think you could make a lot of money in China in two rather obvious ways:

Short-sell the Shanghai and Shenzhen stock indexes (there are ways to do that here in the US, albeit not ideal ways)
Short-sell the Chinese real estate market (not sure how you can do that).

Here’s a very recent piece on a report just released by Albert Edwards and Societe Generale. Edwards correctly called the 1997 bubble in Asia. They are now predicting new lows will be reached in Asian markets in the second half of 2009. He is dead on with this quote: “The continued enthusiasm for all things China reminds me so much of the way investors were almost totally blind to the fact the US growth miracle was build on sand. China could be the biggest disappointment yet.”

I would only add that, in my view, there is no doubt: China will be the biggest disappointment yet. That economy will display in historically unprecedented graphic detail exactly how much devastation bubbles can cause, ESPECIALLY simultaneous bubbles. China reminds me of a place near where I live called “The Wedge.” It is a famous place for body surfing and belly-boarding, and just as famous (or infamous) for the steady toll of injuries and deaths the place produces. The waves come from the northwest, bounce off the jetty, then head back into the path of incoming waves. Two waves meet and potentiate one another, and rise to peak in a “wedge” shape that often has unbelievably ferocious power. And, because these waves break very close to shore in shallow water, there have been quite a lot of people who went “over the top” and were jackhammered into the sand and rendered paraplegic or quadriplegic there, or killed outright. You’d never believe the ferocity of this place unless you have been there and seen it with your own eyes and ears (it is LOUD). Crowds gather on the sand on big days just to gaze in awe (and watch the inevitable carnage). People don’t simply get “rag-dolled” here when they don’t make the wave, they can get flat pulverized into the sand.

The WEDGE - Huge Surf / April 11, 2007

Well, I think you’ve got the equivalent in China, because both real estate and equity markets have formed frightening bubbles. And, just to add to things, an increasing proportion of both commercial and residential real estate lies vacant, building continues nonetheless, the banking sector’s fortunes are strongly tied to the construction and real estate markets, there is virtually no secondary market for real estate to speak of, and Chinese banks are notoriously reluctant to write down bad debt. Sounds to me a lot like Japan in the late 80s—only worse. The Nikkei even today is trading about 75% below where it was trading at the peak in late 1989. And that doesn’t even consider the change in buying power of the yen over that time. This is a devastating loss that takes at least a full generation to repair.

I think China will recapitulate what happened in Japan, and for all the same reasons. You’ve got precisely the same prerequisites for disaster in China, so why would it be any different this time? Plus, there are some additional reasons why things will be particularly bad there over then next 25 or 30 years. One thing we have learned about bubbles—-once they are fully formed, there is no way to tame them, just like a fully-formed wave at the Wedge when it’s really firing. They just have to expend their explosive energy, and anybody with the common sense God gave gravel will just get out of the way. There is no way to suppress or regulate these things once they begin to gather momentum. No government or regulatory body has ever succeeded in doing so, to the best of my knowledge, and few if any have any motivation to even try. Why would anybody mess with a cash cow that is driving an economy at breakneck speed, after all?

We have not seen the full force of the implosion yet. That is still probably months away. In the meantime, the bull trap sucker’s rally that the Chinese stock market have been in for several months now rather predictably out-suckers even the US sucker’s rally. The Shanghai market is up almost 70% from the lows in November. That one has gone about as far as it can go now, and is really gonna crash and burn.

Here’s a very interesting story published a few weeks ago in the Far Eastern Economic Review on the real estate markets in China. You will see that the gist of this is that a huge proportion of real estate bought in China lies empty. The reasons are not completely understood, but it is not simply a matter of a huge supply/demand imbalance (although that is certainly the case). Beyond that, there are more ominous undertones with potential repercussions that are very bad.

It seems that many Chinese buy real estate because they view it as a “can’t lose” investment (sound familiar?). They don’t often rent out the space. It is not as easy to rent residential space in China, because anybody who can would rather buy a new house, partly because of the prestige value, but also partly because they believe that real estate is a “can’t lose” investment. Evidently they have the belief that at some point in the future, they could always sell the property, since it is still technically “new.” Remember, there is at best only a very small secondary market in real estate in China. Nobody in China goes shopping for a “used” home, they always look for a home in brand new developments. These are typically high rise apartment buildings that are really not very attractive at all by our standards (with some exceptions in parts of Beijing and some of the other largest cities). They often look more like tenement slums, particularly after they age a few years, because nobody does much painting or landscaping in Chinese residential areas. I have never seen housing tracts like the ones that are so common in the US, and I suppose they exist somewhere to a very limited extent, but I never even saw any single-family free-standing homes. It’s all high rise condo/apartment buildings. I realize this is kind of paradoxical…..that Chinese would believe they can always make money selling a home second-hand despite the fact that the secondary market is small or even nonexistent in places. But, that’s China. I think they are less concerned with actually realizing a gain, than in maintaining a paper gain. Again, a not insignificant factor here is the prestige value.

Anyhow, obviously this attitude among Chinese has only made things worse, because it has kept a doomed real estate market hovering and even pushing higher artificially. The demand for living space has not kept this market up, just the demand for real estate as a place to park cash. But builders don’t care, they just keep building anyway. Now, this will lead to disaster, partly for the same reason that disaster struck the stock markets there: investors who were once convinced that the Chinese stock market was a get-rich-quick machine lost confidence as they lost money, and that started the implosion in that market. Now, something like 30% of residential real estate in the big cities at least is unoccupied. What might happen to that real estate when the value of new residential real estate begins to plummet? What would YOU do if you owned a residence in Beijing, and suddenly discovered that brand new housing of comparable size/location could be bought for much less than what you paid for yours? How long would you hold on to it? How long would you continue to pay the mortgage?

I think you’ll see people walking away from mortgages, just like you do everywhere else, except the scale will be massively increased because much of the property is unoccupied, and cannot be sold very easily, except perhaps at a deep discount. And, as properties pile up on bank asset sheets, what will they do with them in a country that doesn’t have much of a secondary market and has far worse unemployment than we do? They can’t even sell them at fire-sale prices to any significant degree.

I don’t know how much Chinese banks gorged themselves on the CDO feeding frenzy that brought down the US banking sector. But even if they refrained somehow, they have a problem that might be just as bad: a ton of housing that will end up on their books, and no way to get rid of most of it. That could lead to eventually booking nearly total losses, which virtually never occurs in the US. And, just as occurred in Japan, they will pretend as long as they can that these losses don’t exist, but it is only a question of time until they are forced to face facts. Knowing a thing or two about China and Chinese, I bet Chinese banks will label the real estate that ends up on their books as “assets” and will value them at full value, as if the mortgage were still being paid and would eventually be paid in full. They would probably want to just downgrade the stated interest rate on the mortgage to zero, but the problem there is that with mortgages in China, there are big down payments (typically at least 25%), and the terms of the mortgages are usually rather short (typically 10 years). So, most mortgages require paying more on the principal from the beginning. That makes it much harder for a bank to pretend that no loss has occurred. They’ll figure out some way to rig the books. Chinese expertise at lying with numbers is well-established and among the best (or worst, depending on whether you value the truth or not). In fact, it is long-established unwritten government policy to produce absurdly optimistic statistics. But the end result will only be postponed somewhat. And people will remain fooled longer than they otherwise would have.

Anyhow, I think this is all pretty much inevitable. Chinese will predictably lose confidence in real estate as a “cash-equivalent” commodity or hedge against inflation. They will look to park their assets in whatever other safe havens they think there are, such as gold, US treasuries, etc. They certainly won’t pour money into the stock markets. They will walk away from mortgages en masse, and scramble to try to sell real estate holdings at a loss, probably with very limited luck. There won’t be a lot of buyers lining up to buy discounted residences in a deteriorating real estate market, with unemployment rising and corporate profits sinking and business going under and exports dropping (all of this has been steadily developing or is well underway).

This might seem rather gloomy, but I really can’t see much of anything optimistic in China’s future over the next several decades. Quite the opposite, you have been hard-pressed to have scripted a better economic doomsday scenario if you tried.
Trade

Besides the fact that corporate profits in China are down 30% this year, there is another series of widely underappreciated statistics: trade.

China’s economy is heavily dependent on exports of cheap goods. For one thing, this approach is unsustainable and does not of itself lead to economic strength. That’s why many cheap labor countries that similarly produce a lot of cheap, low-tech items do not thrive (e.g., Thailand, Honduras, Vietnam, etc.). In fact, they merely wallow in poverty that they can’t seem to get out of. Don’t forget, despite a wealthy class in the big cities in China, there is really no middle class, and the average wage in the countryside is often less than $100 per year. Even in the cities, the equivalent of the working class there typically makes around 1000 to 2000 RMB per month (roughly $145 to $290 US per month). But the vast majority of Chinese live in the countryside, which is another world compared to Shanghai, Guangzhou, and Beijing, which house just a small fraction of China’s population. Imagining that these cities typify China is like standing on the Strip in Las Vegas and imagining that this is just a typical road in a a typical American town. So, China is classified as an emerging/developing economy by the World Bank.

We know one thing about recessions and depressions: economies that depend the most on exports are the ones that suffer the most. And without question, of all the major exporting countries in the world, China’s economy is the most heavily dependent on exports, mostly consisting of cheap goods.

So what has happened to China’s exports?

Well—notwithstanding a never-ending stream of perennially wrong predictions for over 6 months that things are turning around and recovery is imminent—there’s no good news no matter where you look. The rosiest statistics involve those denominated in dollars, but that markedly underestimates the real RMB-linked economic impact. But what do these statistics show?

In November, exports dropped in China for the first time in 7 years. In December, the drop was even steeper, and exports have dropped every single month thereafter. In May, exports dropped over 26% compared to the same month last year, which was the greatest drop that economy has ever experienced. Worse, exports to the European Union (China’s biggest foreign market) plunged 41.3% in May.

Inexplicably however, many analysts (especially in China, unsurprisingly) insist the worst of the slump is over, despite little or no tangible evidence to support that conclusion. But this has been a constant theme since November: every month, government (and other) spokesmen in China assert that things would quickly improve. For example, after exports fell 22.6% in April (which was a record, until the following month), Commerce Ministry spokesman Yao Jian said that China was confident exports would imporve “on the basis of the gradual recovery seen in the first quarter.” Gradual recovery? You call plunging exports, with each month exceeding the previous month, “gradual recovery?”

Even the Wall Street Journal got suckered into this lunacy. After exports dropped 17.1% in March and then 22.6% in April (both figures exceeded estimates, by the way), the WSJ cited increasing investment statistics, and said “The investment data reflect how Beijing’s stimulus program, which is focused on public infrastructure investments backed by a flood of bank credit, has helped stabilize the economy.”

I am not sure what “flood of bank credit” they are referring to. Actually, cheap credit by Chinese banks is drying up rapidly, which is not the least surprising, given the economic reality. In fact, in April, lending by Chinese banks dropped two-thirds compared to March.

One of the reasons the government is putting the brakes on lending is because there is widespread suspicion that as much as one-third of the new loans during the first quarter were going into the stock market, not fixed investments. Could that be why the Shanghai market is up 54% so far this year, despite nothing but economic news moving from bad to really bad, and corporate profits down 30%?

The upshot is that while inflation has plagued China for years, now they have a new and far more ominous economic foe: DEFLATION. Not many seem to have noticed, but as of May, the Chinese economy had experienced FOUR straight months of deflation.

What was the response? Here’s an example, which is pretty much the same sort of tone we have seen all along in response to increasingly bad economic conditions in China:

"’Although the indices continued to see negative growth in April, deflationary concerns appear to be subsiding as the economy shows signs of recovery,’ said Jing Ulrich, chairman of China equities at JPMorgan.” China Economic Net

WHAT signs of recovery, other the continuous drone of optimistic pronouncements from analysts and government officials?

A month later, when “signs of recovery” once again failed to materialize, but instead were replaced with another month of plunging exports and deflation, Forbes gave this laughable pronouncement:

“China’s consumer prices continued to fall as expected in May, but analysts expect a price rebound by the end of this year. Meanwhile, the deflation could be a boon for consumers as China weathers a slowdown of wage growth.”

Well, I suppose wage growth is only a concern for that rapidly shrinking proportion of Chinese who actually have jobs. You think unemployment is bad here, well we are living the high life compared to China.

In Beijing, they threw out most of the peasants who migrated to the cities looking for work and ended up building the Olympic facilities. Now, the huge numbers of Chinese peasants that flocked to the cities (which was, by the way, the largest migration of human beings in the history of the world) have gone back to their farms, but they are mostly not needed there, either. 23 million migrant workers can’t find a job in the cities, and they can’t find work back home. University graduates spend years looking for work, and often end up selling clothes or working in one of the omnipresent KFCs. China’s answer? Well, according to the China Post, they want to train people to be housekeepers! Right. THAT oughta turn China into an economic powerhouse!

It seems that many Chinese buy real estate because they view it as a “can’t lose” investment (sound familiar?). They don’t often rent out the space. It is not as easy to rent residential space in China, because anybody who can would rather buy a new house, partly because of the prestige value, but also partly because they believe that real estate is a “can’t lose” investment. Evidently they have the belief that at some point in the future, they could always sell the property, since it is still technically “new.” Remember, there is at best only a very small secondary market in real estate in China. Nobody in China goes shopping for a “used” home, they always look for a home in brand new developments. These are typically high rise apartment buildings that are really not very attractive at all by our standards (with some exceptions in parts of Beijing and some of the other largest cities). They often look more like tenement slums, particularly after they age a few years, because nobody does much painting or landscaping in Chinese residential areas. I have never seen housing tracts like the ones that are so common in the US, and I suppose they exist somewhere to a very limited extent, but I never even saw any single-family free-standing homes. It’s all high rise condo/apartment buildings. I realize this is kind of paradoxical…..that Chinese would believe they can always make money selling a home second-hand despite the fact that the secondary market is small or even nonexistent in places. But, that’s China. I think they are less concerned with actually realizing a gain, than in maintaining a paper gain. Again, a not insignificant factor here is the prestige value.

Anyhow, obviously this attitude among Chinese has only made things worse, because it has kept a doomed real estate market hovering and even pushing higher artificially. The demand for living space has not kept this market up, just the demand for real estate as a place to park cash. But builders don’t care, they just keep building anyway. Now, this will lead to disaster, partly for the same reason that disaster struck the stock markets there: investors who were once convinced that the Chinese stock market was a get-rich-quick machine lost confidence as they lost money, and that started the implosion in that market. Now, something like 30% of residential real estate in the big cities at least is unoccupied. What might happen to that real estate when the value of new residential real estate begins to plummet? What would YOU do if you owned a residence in Beijing, and suddenly discovered that brand new housing of comparable size/location could be bought for much less than what you paid for yours? How long would you hold on to it? How long would you continue to pay the mortgage?

I think you’ll see people walking away from mortgages, just like you do everywhere else, except the scale will be massively increased because much of the property is unoccupied, and cannot be sold very easily, except perhaps at a deep discount. And, as properties pile up on bank asset sheets, what will they do with them in a country that doesn’t have much of a secondary market and has far worse unemployment than we do? They can’t even sell them at fire-sale prices to any significant degree.

I don’t know how much Chinese banks gorged themselves on the CDO feeding frenzy that brought down the US banking sector. But even if they refrained somehow, they have a problem that might be just as bad: a ton of housing that will end up on their books, and no way to get rid of most of it. That could lead to eventually booking nearly total losses, which virtually never occurs in the US. And, just as occurred in Japan, they will pretend as long as they can that these losses don’t exist, but it is only a question of time until they are forced to face facts. Knowing a thing or two about China and Chinese, I bet Chinese banks will label the real estate that ends up on their books as “assets” and will value them at full value, as if the mortgage were still being paid and would eventually be paid in full. They would probably want to just downgrade the stated interest rate on the mortgage to zero, but the problem there is that with mortgages in China, there are big down payments (typically at least 25%), and the terms of the mortgages are usually rather short (typically 10 years). So, most mortgages require paying more on the principal from the beginning. That makes it much harder for a bank to pretend that no loss has occurred. They’ll figure out some way to rig the books. Chinese expertise at lying with numbers is well-established and among the best (or worst, depending on whether you value the truth or not). In fact, it is long-established unwritten government policy to produce absurdly optimistic statistics. But the end result will only be postponed somewhat. And people will remain fooled longer than they otherwise would have.

Anyhow, I think this is all pretty much inevitable. Chinese will predictably lose confidence in real estate as a “cash-equivalent” commodity or hedge against inflation. They will look to park their assets in whatever other safe havens they think there are, such as gold, US treasuries, etc. They certainly won’t pour money into the stock markets. They will walk away from mortgages en masse, and scramble to try to sell real estate holdings at a loss, probably with very limited luck. There won’t be a lot of buyers lining up to buy discounted residences in a deteriorating real estate market, with unemployment rising and corporate profits sinking and business going under and exports dropping (all of this has been steadily developing or is well underway).

This might seem rather gloomy, but I really can’t see much of anything optimistic in China’s future over the next several decades. Quite the opposite, you have been hard-pressed to have scripted a better economic doomsday scenario if you tried.
Trade

Besides the fact that corporate profits in China are down 30% this year, there is another series of widely underappreciated statistics: trade.

China’s economy is heavily dependent on exports of cheap goods. For one thing, this approach is unsustainable and does not of itself lead to economic strength. That’s why many cheap labor countries that similarly produce a lot of cheap, low-tech items do not thrive (e.g., Thailand, Honduras, Vietnam, etc.). In fact, they merely wallow in poverty that they can’t seem to get out of. Don’t forget, despite a wealthy class in the big cities in China, there is really no middle class, and the average wage in the countryside is often less than $100 per year. Even in the cities, the equivalent of the working class there typically makes around 1000 to 2000 RMB per month (roughly $145 to $290 US per month). But the vast majority of Chinese live in the countryside, which is another world compared to Shanghai, Guangzhou, and Beijing, which house just a small fraction of China’s population. Imagining that these cities typify China is like standing on the Strip in Las Vegas and imagining that this is just a typical road in a a typical American town. So, China is classified as an emerging/developing economy by the World Bank.

We know one thing about recessions and depressions: economies that depend the most on exports are the ones that suffer the most. And without question, of all the major exporting countries in the world, China’s economy is the most heavily dependent on exports, mostly consisting of cheap goods.

So what has happened to China’s exports?

Well—notwithstanding a never-ending stream of perennially wrong predictions for over 6 months that things are turning around and recovery is imminent—there’s no good news no matter where you look. The rosiest statistics involve those denominated in dollars, but that markedly underestimates the real RMB-linked economic impact. But what do these statistics show?

In November, exports dropped in China for the first time in 7 years. In December, the drop was even steeper, and exports have dropped every single month thereafter. In May, exports dropped over 26% compared to the same month last year, which was the greatest drop that economy has ever experienced. Worse, exports to the European Union (China’s biggest foreign market) plunged 41.3% in May.

Inexplicably however, many analysts (especially in China, unsurprisingly) insist the worst of the slump is over, despite little or no tangible evidence to support that conclusion. But this has been a constant theme since November: every month, government (and other) spokesmen in China assert that things would quickly improve. For example, after exports fell 22.6% in April (which was a record, until the following month), Commerce Ministry spokesman Yao Jian said that China was confident exports would imporve “on the basis of the gradual recovery seen in the first quarter.” Gradual recovery? You call plunging exports, with each month exceeding the previous month, “gradual recovery?”

Even the Wall Street Journal got suckered into this lunacy. After exports dropped 17.1% in March and then 22.6% in April (both figures exceeded estimates, by the way), the WSJ cited increasing investment statistics, and said “The investment data reflect how Beijing’s stimulus program, which is focused on public infrastructure investments backed by a flood of bank credit, has helped stabilize the economy.”

I am not sure what “flood of bank credit” they are referring to. Actually, cheap credit by Chinese banks is drying up rapidly, which is not the least surprising, given the economic reality. In fact, in April, lending by Chinese banks dropped two-thirds compared to March.

One of the reasons the government is putting the brakes on lending is because there is widespread suspicion that as much as one-third of the new loans during the first quarter were going into the stock market, not fixed investments. Could that be why the Shanghai market is up 54% so far this year, despite nothing but economic news moving from bad to really bad, and corporate profits down 30%?

The upshot is that while inflation has plagued China for years, now they have a new and far more ominous economic foe: DEFLATION. Not many seem to have noticed, but as of May, the Chinese economy had experienced FOUR straight months of deflation.

What was the response? Here’s an example, which is pretty much the same sort of tone we have seen all along in response to increasingly bad economic conditions in China:

"’Although the indices continued to see negative growth in April, deflationary concerns appear to be subsiding as the economy shows signs of recovery,’ said Jing Ulrich, chairman of China equities at JPMorgan.” China Economic Net

WHAT signs of recovery, other the continuous drone of optimistic pronouncements from analysts and government officials?

A month later, when “signs of recovery” once again failed to materialize, but instead were replaced with another month of plunging exports and deflation, Forbes gave this laughable pronouncement:

“China’s consumer prices continued to fall as expected in May, but analysts expect a price rebound by the end of this year. Meanwhile, the deflation could be a boon for consumers as China weathers a slowdown of wage growth.”

Well, I suppose wage growth is only a concern for that rapidly shrinking proportion of Chinese who actually have jobs. You think unemployment is bad here, well we are living the high life compared to China.

In Beijing, they threw out most of the peasants who migrated to the cities looking for work and ended up building the Olympic facilities. Now, the huge numbers of Chinese peasants that flocked to the cities (which was, by the way, the largest migration of human beings in the history of the world) have gone back to their farms, but they are mostly not needed there, either. 23 million migrant workers can’t find a job in the cities, and they can’t find work back home. University graduates spend years looking for work, and often end up selling clothes or working in one of the omnipresent KFCs. China’s answer? Well, according to the China Post, they want to train people to be housekeepers! Right. THAT oughta turn China into an economic powerhouse!

Fitch Ratings has been warning for some time that China's lenders are wading into dangerous water

By Ambrose Evans-Pritchard
Published: 5:38PM BST 28 Jun 2009

A growing number of experts are casting doubt on China's ability to pull the global economy from recession

China's banks are veering out of control. The half-reformed economy of the People's Republic cannot absorb the $1,000bn (£600bn) blitz of new lending issued since December.

Money is leaking instead into Shanghai's stock casino, or being used to keep bankrupt builders on life support. It is doing very little to help lift the world economy out of slump.

Fitch Ratings has been warning for some time that China's lenders are wading into dangerous waters, but its latest report is even grimmer than bears had suspected.

"With much of the world immersed in crisis, China appears to be one of the few countries where the financial system continues to function largely without a glitch, but Fitch is growing increasingly wary," it said.

"Future losses on stimulus could turn out to be larger than expected, and it is unclear what share the central and/or local governments ultimately will be willing or able to bear."

Note the phrase "able to bear". Fitch's "macro-prudential risk" indicator for China threatens to jump from category 1 (safe) to category 3 (Iceland, et al). This is a surprise to me but Michael Pettis from Beijing University says China's public debt may be as high as 50pc-70pc of GDP when "correctly counted".

The regime is so hellbent on meeting its growth target of 8pc that it has given banks an implicit guarantee for what Fitch calls a "massive lending spree".

Bank exposure to corporate debt has reached $4,200bn. It is rising at a 30pc rate, even as profits contract at a 35pc rate.

Fitch traces the 2009 bubble to the central bank's decision to cut interest on reserves to 0.72pc. Bankers responded to this "margin squeeze" by ramping up the volume of lending instead. Over half the new debt is short-term. Roll-over risk is rocketing. China's monetary stimulus since November is arguably more extreme than the post-Lehman printing of the US Federal Reserve, though less obvious to the untrained eye.

Under the Taylor Rule, US policy remains tight (for the US). China's policy is loose (for China). New loans doubled in May from a year earlier, almost entirely to companies.

China's Banking Regulatory Commission fired a warning shot last week. "The top priority at the moment is to stop explosive lending. Banks should carefully monitor the process of credit approval and allocation, and make sure that loans flow into the real economy," it said.

Unfortunately, 40pc of the "real economy" consists of exports, mostly to the US and Europe, the consequence of a mercantilist export model that has qcrashed and burned. Chinese exports were down 26pc in May.

World trade may be stabilizing at last after contracting at faster rate than during the early Great Depression. But it will not rebound fast in a world where the US savings rate has risen to a 15-year high of 6.9pc. A trade policy based on the assumption that debtors in the Anglosphere and Europe's Club Med can ruin themselves for ever is absurd.

Andy Xie, a Sino-bear and commentator for Caijing, said Western analysts are in for a rude shock if they think that China's surging demand for raw materials implies genuine recovery.

Commodity speculators have been using cheap credit to play the arbitrage spread between futures and spot on the oil markets. They have even found ways to trade lumber to iron ore by sheer scale of leverage. "They've made everything open to speculation," he said.

Mr Xie thinks the spring recovery is an inventory spike, to be followed a double-dip downturn into next year as stimulus wears off.

Reformers know what must be done to boost consumption. China needs a welfare revolution. But creating a social security net takes time, and right now Beijing is facing a social crisis as 20m jobless workers retreat to the rural hinterland.

So the regime is resorting to hazardous methods to keep excess factories humming: issuing a "Buy China" decree: using a plethora of export subsidies; holding down the price of coke, bauxite, zinc and other resources to lower production costs (prompting a complaint from America and Europe); and suppressing the yuan, again.

Protectionism is a risky game for a country that lives off global trade and runs a surplus near 10pc of GDP. Mr Pettis said he fears China is nearing its "Smoot-Hawley moment", repeating the US tariff blunder of 1930 that brought the world crashing down on Washington's head.

Two facts stand out about China's green shoots. While the Shanghai composite index is up 70pc since November, Chinese imports are down 25pc from a year ago. China is still draining real stimulus from the global economy.

If the world's biggest surplus state ($400bn) is too structurally deformed to help offset the demand shock as Western debtors retrench, we are trapped in a long deflation slump.

^ LOL. This guy is no educated economist. Just some two-bit market speculator.

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You didn't even read the article and leaving one-liners as if you are an expert on the subject at hand. If you think his analysis is wrong, point it out and tell us why he is wrong. I know you can't do that.

^ LOL. This guy is no educated economist. Just some two-bit market speculator.

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I will not say that you canot do economic analysis well, but I would be looking forward to a more detailed critique of why you think he is wrong. I can think of some but wouod like to hear your point of view instead of just a "LOL HAHAH THIS GUY IS A JERK" type of reaction.

Also, you are displaying the concept of playing the man instead of playing the ball, which does not make for good debates

July 9, 2009
Almost one in three new Chinese college graduates are unable to find a job, according to the official Xinhua news agency.

Citing the Ministry of Education, Xinhua said about 2 million graduates, or 32 per cent of the total of 6.11 million, were without work.

The figure is the highest since the ministry started collecting the data in 1996.

Premier Wen Jiabao has given assurances that the government will do all it can to find jobs for the new graduates.

Zhang Haoming, an official with the ministry, told Xinhua the financial crisis was to blame.

But analysts also point the finger at a massive expansion of college enrollment in recent years: China enrolled 6 million new college students in 2008, up from 1.08 million in 1998.

They also cite the education system's failure to produce graduates with the qualifications and skills that employers need as well as unrealistically high job and salary expectations on the part of some college leavers.

They also cite the education system's failure to produce graduates with the qualifications and skills that employers need as well as unrealistically high job and salary expectations on the part of some college leavers.

Several years ago I went to China on a working visit relating between my university and the Ezhou University.
One of the critical issues was the need for Ezhou students to complete their degrees at Ezhou University and if they wanted to get anywhere they had to do a final year at Wuhan.
The difference being Ezhou was a provincial university while Wuhan was a national university.
From memory the acceptance into Wuhan was not automatic and also there was an additional cost to the student and that student’s parents.

So if provincial universities produce hundreds of students per year but few can get into the national universities there will be a large number of graduates unemployed, that is provincial university students.
The economic problems will just accentuate the problem with reduced employment prospects for all students, national and provincial.

From an Australian perspective we also had problems with the work/study a student had completed at Ezhou, (standard and material) vs what we covered.

Overseas sales slid 21.4 percent in June from a year earlier, the customs bureau said today on its Web site, after a record 26.4 percent drop in May.

Imports fell a less-than-estimated 13.2 percent, the smallest decline in eight months, signaling that the worst may almost be over for the nation’s trade. China, the world’s second-biggest exporter, has stalled gains by the yuan against the dollar and increased export-tax rebates as the government’s 4 trillion yuan ($585 billion) stimulus package drives an economic recovery.

“There’s light at the end of the tunnel, given that imports are a leading indicator for exports in China,” said Sun Mingchun, chief China economist at Nomura Holdings Inc. in Hong Kong. “The worst for exports will be over soon.”

Premier Wen Jiabao said the foundations for an economic recovery are not yet solid and pledged to continue a pro-active fiscal policy and moderately loose monetary policy, a statement on the government’s Web site said today.

June’s fall in exports almost matched the median estimate in a Bloomberg News survey of 19 economists for a 21 percent decline. The nation’s run of export declines is the longest since during 1995 and 1996.

The yuan closed at 6.8328 against the dollar in Shanghai, from 6.8326 before the data was released. The central bank has kept the yuan stable in the past year after the currency gained 21 percent against the dollar between July 2005 and July 2008.

The trade surplus narrowed to $8.25 billion, the smallest in two years, excluding the first two months of each year, when a Chinese holiday causes distortions. The decrease in imports from a year earlier slowed from a 25.2 percent decline in May. Economists’ median estimate was for a 20.3 percent slide.

“China’s domestic demand is now growing more strongly,” said Paul Cavey, an economist with Macquarie Securities in Hong Kong. “That’s bringing down the trade surplus and that’s going to reduce protectionist pressures.”

The government aims to revive economic growth to create jobs and maintain social stability ahead of the 60th anniversary of Communist Party rule in October. Riots in the northwestern Urumqi city on July 5 left 156 people dead, highlighting ethnic tensions and economic disparities.

An almost fivefold jump in new loans last month, announced by the central bank this week, extended a credit boom that’s fueling growth and may also be inflating bubbles in stocks and property.

The benchmark Shanghai Composite Index has surged more than 80 percent from last year’s low on Nov. 4. Guilin Sanjin Pharmaceutical Co. and Zhejiang Wanma Cable Co., the first two companies allowed to go public in China since September, surged on their stock market debut today.

China failed today to attract enough bidders in a government debt sale for a second time this week on speculation that the record bank lending will spark inflation in the world’s third-largest economy.

Second-quarter gross domestic product will be announced on July 16. The economy grew 6.1 percent in the first quarter from a year earlier, the weakest pace in almost a decade.

Government’s Target

Economic growth will top the government’s 8 percent target for the year as lending and investment surge, according to Goldman Sachs Group Inc. and BNP Paribas SA.

Export growth may return to “normal” by the end of this year or early 2010, central bank adviser Fan Gang said July 1, as a government-backed manufacturing index showed export orders expanded for a second month.

A recovery in export demand may be slowed by rising unemployment in the European Union and the U.S., China’s top two overseas markets. U.S. companies have slashed about 6.5 million jobs since the recession began in December 2007, the most of any slump since World War II, and European retail sales fell more than economists forecast in May.

Exports to the U.S. fell 16.9 percent in the first half of 2009 from a year earlier, the customs bureau said. Shipments to the European Union declined 24.5 percent.

Lenovo Group Ltd., China’s biggest maker of personal computers, posted a record loss in the three months ended March 31 as sales in the Americas plunged.

Besides weaker demand, protectionism may also be a threat as governments around the world seek to support local industries. China’s commerce ministry said June 29 that it’s “very concerned” about anti-dumping and anti-subsidy investigations of Chinese steel products in the U.S.

Yet Chinese officials said the increased economic expansion between April and June could not obscure continuing problems.

"The difficulties and challenges in the current economic development are still numerous," said National Bureau of Statistics spokesman Li Xiaochao at a news conference.

"The basis of the rebound of the people's economy is not stable," he said.

"The base for recovery is still weak. Growth momentum is unstable. The recovery pattern is unbalanced and thus there are still uncertain and volatile factors in the recovery process," the NBS said in a statement distributed ahead of a news conference.

It said that urban per capita incomes were up 11.2% from a year earlier, and that real rural per capita incomes were up 8.1%.

Meanwhile, China's consumer price index fell 1.7% in June compared with the same month a year earlier, the fifth consecutive monthly decline.

Exports in June were down 21.4% compared with a year earlier, the government said last week.

Public private progress

Our correspondent said that while the public sector was leading the speed up in the rate of economic expansion, the private sector was also doing its part

China's state controlled banks have lent huge amounts of money to the country's state owned and private sector businesses.

Companies have used the cash to try to avoid shedding jobs and to invest in new equipment.

Meanwhile, the many new government infrastructure projects have provided employment for many of the migrant workers who have been laid off - mainly in the export sector, our correspondent added.

Analysts broadly welcomed China's latest economic data.

"It's very encouraging: the 8% growth target [for the year] is in sight," said Daniel Soh, an economist at Forecast in Singapore.

"It's by now clear that the fiscal stimulus package has offset the contraction in export activity."

Industrial output - a measure of activity in the nation's factories and workshops - grew by more than 10% year on year in June.

Urban fixed asset investment - a measure of government spending on infrastructure - rose by more than 35% over the same period.

China's economic growth in the first quarter of 6.1%, had been the weakest growth since quarterly records began in 1992.

The country experienced double-digit growth from 2003 to 2007, and recorded 9% growth in 2008.

I think that it is the time for Chinese government to brake and cool the economy.

now, most of people here expect that inflation is coming and the price of real asset rise agains.

Chinese government has invested too heavily on the stimulus in the past several moths. Chinese economy is on the edge of overheat.

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No way you can cool down now mate. This will lead to the rise of India which is waiting to take your position. The Chinese economy is like the "hare" in the race between the Hare and the Tortoise. The hare cant afford to sleep and wake up at the time it wants to.